NEWS

Bank of Canada slashes economic growth forecast

10/23/2013 10:25 EDT | Updated 01/23/2014 06:58 EST
The Bank of Canada has held its key interest rate at one per cent and cut its outlook for economic growth to 1.6 per cent this year, 2.3 per cent in 2014 and 2.6 per cent in 2015, a sizable downgrade from its July outlook.

In its monetary policy report released today by governor Stephen Poloz, the bank says it sees the economy returning to full capacity by the end of 2015.

The statement also removes the bank’s warning that a rate hike is inevitable, a "major turn in guidance," according to Andrew Pyle, senior wealth adviser and portfolio manager at Scotia McLeod.

"There is clearly not enough confidence in the U.S. or global economy to push export growth and the Bank is also more concerned about a potential correction in the housing sector because of the continued ramp-up in prices," Pyle said in a note to investors.

The Bank of Canada says softer-than-expected U.S. growth pushed the full recovery of the economy later, but that it expects "a better balance between domestic and foreign demand will be achieved over time and that economic growth will become more self-sustaining".

In its July report, the bank had predicted the Canadian economy would grow 1.8 per cent this year, followed by 2.7 per cent in 2014 and 2015, returning to full capacity in mid-2015.

The report sent the Canadian dollar plummeting, down 0.93 cents against the U.S. dollar to to 96.27 cents US in mid-morning trading.

The lower economic outlook and stubbornly low inflation mean the Bank of Canada is likely to hold interest rates for at least another two year, according to Pyle.

He says major banks will soon begin changing their outlooks, and "push out any timing for rate hikes until at least 2016," and even then, major positive economic news will need to take place before then.

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